Thursday, 22 September 2016

Following an insightful day at last week's IGD Wholesaling Summit, I dared to temporarily step into Mr. Bezos’ shoes and wondered to what extent the UK Wholesaling sector might represent a potential revenue stream for Amazon.

Given the ongoing retail structural changes taking place in unprecedented times, where every route to consumer counts, suppliers are now even more reliant on wholesalers to service medium and smaller independent grocers in the UK.

The cost of personal callage at say £50k annual cost of a ‘salesman’ making 20 calls per day, 200 days per annum @5% Net Profit margin, means that a 100% strike rate at £250 ordered per call to break even, means that direct supplier coverage via a field sales force is only viable at the upper end of the retail trade.

Meanwhile, independent retailers need retailing advice, guidance and support like never before. As small, understaffed and over-worked businesses, living from hand to mouth, literally, they are under many of the pressures being experienced by the multiples in terms of red-tape, legislation, narrowing margins, fluctuating demand, unpredictable cash-flows and cost-price increases in a flat-line demand environment. And, by the way, many have an Aldi or Lidl nearby, a constant temptation for their regulars…

They choose their assortments by a combination of instinct and experience, with mistakes ending up in their freezers for later consumption by their families. As the son of a Mom&Pop grocer, I can still remember coming in from school with my siblings, each complaining about ‘salmon cutlets again for tea’, following a glut in the Dublin fish markets…

It can be seen that wholesalers provide a vital service in accessing those parts of the trade suppliers cannot afford to reach…

In the case of delivered trade, wholesalers have improved speed of response and moved towards 100% availability whilst Cash & Carry are making it easier and faster to shop, all at significant cost to the bottom line in narrow margin businesses that are faced with increasing pipeline pressures such as National Minimum Wage and Sugar Tax…

From Amazon’s point-of-view, small independent grocers could simply look like big consumers.

In practice, an added benefit would be that independent retailers are capable of aggregating the demand of consumers that are too currently too small even for Amazon…

Amazon has all the necessary machinery - infinitely scalable - already in place.

Meanwhile, in the current climate, a small retailer would benefit from being able to buy even one pack of a single SKU i.e. no minimum order, access an infinite range, avail of auto-analysis of purchasing behaviour via the Amazon machinery, all with the ease of 1-Click ordering, 1-Day delivery and no-quibble returns. In effect, a fully comprehensive delivered wholesale service, with Click & Collect serving as an equivalent to a Cash & Carry service…

And merely a step away from allowing Amazon to place some consumer Click & Collect lockers in the store as further evidence of the Amazon-retailer trade partnership…

In terms of promotional help, Amazon could make a case to suppliers that promo-kits containing materials and guidance could be packaged as ‘products’ and offered to appropriate retailers via the Amazon portfolio, with YouTube demos complementing and enriching the supplier-retailer virtual relationship. Amazon would thus have a means of offering suppliers a cost effective means of supporting smaller independent retailers, and all without a salesman having to cross the threshold…

In the process, a convenience store, given access to infinite variety, fast, could easily morph into a general store capable of meeting micro-demands from local consumers, cost-effectively, the ultimate convenience outlet.

In terms of timing and sequence, Amazon could offer this service on the back of Prime Fresh in the London area almost immediately. Thinking about it, many of the retailers/sole-proprietors are probably Amazon subscribers anyway, paying cash, so little or no vetting would be required. Most branded goods suppliers will already have existing links with Amazon, so little change would be required by either party.

In greater London Amazon would be faced with their most intense competition from wholesalers, so any success resulting from adapting their business model in this market could be rolled out to other parts of the UK, as fast as Amazon chooses to move…

In other words, a very real threat to wholesalers that are unable or unwilling to recognise the need to anticipate and react to competition from a company whose mission statement includes selling anything that can be legally sold to anyone, anywhere, anytime in whatever way they choose to buy…

All else is detail...

P.S. If you would like a copy of our companion paper: How UK Grocery Wholesalers could pre-empt Amazon… Please email me on bmoore@namnews.com

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Blog Contributor

Brian MooreGlobal Retail Consultant & CEO of EMR-NAMNEWS Ltd.

Over the past 30 years Brian has conducted a wide variety of consultancy and training projects (Trade Marketing, Finance, Key Account Management, Category Management, Global Customer Planning and Management) for FMCG clients in the UK, and the around the world. Brian's industry insights are also published in a number of leading trade magazines.